China to Make 'Firm, Effective' Policies to Handle NPAs

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Last updated at: (Beijing Time) Monday, March 24, 2003

China to Make 'Firm, Effective' Policies to Handle NPAs

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China will make firm, decisive and effective policies to solve the problem of the non-performing assets (NPA) that face Chinese banks, Zhou Xiaochuan, newly-elected governor of the People's Bank of China (PBOC), told Xinhua Sunday.

Zhou said the PBOC, China's central bank, is clearly aware that the high rate of banks' NPAs would be a major obstacle to the development of China's banking industry.

The latest official statistics showed that the NPA rate of China's four state commercial banks has amounted to about 25 percent high and, in order to meet the PBOC's requirement of reducing the NPA rate to below 15 percent before 2005, the four banks must reduce their NPA rate by three to five percent annually, Zhou said.

Yang Kaisheng, president of the China Huangrong Asset Management Corporation, one of China's four state asset management corporations, told Xinhua that handling the banks' NPAs by the specialized financial asset management corporation would be one of the effective methods that Zhou might indicate.

Yang said it would take a very long time for the commercial banks to handle the NPAs by themselves, and most importantly, the commercial banks had to keep a large amount of their profit available as the preparation fund for the handling of the NPAs, which much undermines the banks' capital fluidity.

It has become one of the major bottleneck problems that curb the development of China's commercial banks, Yang said.

In addition, to play a dual role of loan granter and NPA handler means the commercial banks have to take much moral risks, Yang said, referring to possibility that a bank employee might take advantage of the dual role for personal profit.

But Wang Yu, an official from the PBOC's department of currency policy, revealed that the PBOC had not conducted any feasibility study on its NPA-reduction plan, so it was not likely that China would put the policies in place within the year.

China established four state asset management corporations to handle the 1.4 trillion yuan (about 162.5 billion US dollars) of NPAs removed from the state commercial banks in 1999.

According to the most recent statistics from the PBOC, the four state asset management corporations had handled NPAs, by the end of 2002, worth 301.2 billion yuan, with 67.4 billion yuan of that in cash.

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